OPEC agrees modest hike in oil supply after Iran softens stance

Saudi Energy Minister Khalid al-Falih said Friday that no-one should expect to see an "immediate flood" of oil coming back onto the market following the meeting. The increase in production will be borne largely by Saudi and Russian Federation.

Based on compliance in May, only Saudi Arabia has any real scope to add barrels and this would be to the tune of just 60,000 barrels per day, far less than it has said the market requires. In reality, production will rise only by 700,000 bpd as some OPEC members are unable to boost production at the moment.

But Iran, bracing for the impact of fresh United States sanctions on its oil exports, fiercely objected to raising output targets, as did countries like crisis-hit Venezuela and Iraq who are unable to raise output in the near term.

But Iranian Oil Minister Bijan Zanganeh said that was not the case: "Each country which has produced less (than its allocation) can produce more".

Instead the producers are seeking to cut no deeper than 1.2 million bpd, the target they set in November 2016. In practice, the reduction was even deeper due to production problems. Crude prices in NY rose more than 3 percent to nearly $68 a barrel and rose about 2 percent in London to more than $74 a barrel.

The price of oil jumped after the announcement, with the global benchmark, Brent, gaining 2.5 per cent to US$74.84 a barrel in London, and U.S. crude climbing 4.9 per cent to US$68.72 a barrel in afternoon trading in New York-on track for its biggest one-day rise since OPEC agreed in November 2016 to cut production. They will discuss with OPEC on Saturday on whether to increase their own production.

The production limits by the Organization of the Petroleum Exporting Countries and Russian Federation since 2016 have helped increase oil prices, with the benchmark US crude contract hitting its highest level in more than three years in May.

Iran, OPEC's third-largest producer, had demanded OPEC reject calls from Trump for an increase in oil supply, arguing that he had contributed to a recent rise in prices by imposing sanctions on Iran and fellow member Venezuela.

"I think there is a risk, a non-trivial risk, of oil prices really spiking in the next twelve months", he said.

Daniel Yergin, the vice chairman of research firm IHS Markit and author of several books on the energy industry, says geopolitical factors are a big element in the oil production talks.